MAIN IMAGE: Kobus Lamprecht – editor of the Rode Report
Senior writer
“Nominal house price growth in South Africa remains slow amid a weak economy and elevated interest rates. Indeed, expectations of interest-rate cuts have been dialled back, and another factor that has held back some buyers is uncertainty over the outcome of the SA elections.”
This is a statement from Kobus Lamprecht, editor of the Rode Report, which provides quarterly property analysis using data from its surveys and various credible resources. Whilst many stakeholders in the residential property market will look to find optimism in a storm, the reality is that historical trends are no longer in play since Covid, which caused an unprecedented number of changes in the market and introduced factors that significantly and tangibly continue to affect property decision-making.
Economy
The two most negative influencers are likely the state of the economy and the interest rate cycle. The factors slowing the economy include:
- The risk of an unstable and/or radical coalition government after the coming elections.
- The looming fiscal cliff.
- Unreliable electricity supply.
- Poor quality of education (a structural problem that will not go away any time soon).
- Too few taxpayers relative to the population.
- Structurally high unemployment.
- Mismanagement of the state’s three tiers of government and SOEs, resulting in, among other things, the rail and port crisis and dysfunctional local authorities.
- The brain drain (long term).
“To this cocktail, we can add short-term factors like elevated interest rates to combat inflation and fast-rising utility costs, which erode household spending. One can argue, though, that the latter is more than a short-term factor,” says Lamprecht,
Interest rate – no fireworks
“The market at the time of our last Rode Report in December was optimistic that interest rates in the US and South Africa would decline several times in 2024, but so far, no cuts in the US and locally have occurred. This is largely due to sticky inflation, with many forecasts being pushed back to late in the year. When interest rates do, in fact, start to decline, the market will get some support, but do not expect fireworks. It is all about affordability.”
The Rode Report shows that the increase in interest rates since November 2021 pushed up monthly mortgage instalments dramatically, which, in Rand terms, translates into an increase of some R3 085 per month, based on a R1-million, 20-year loan. Few middle- and lower-income households have been able to absorb this given elevated inflation, which the SARB seems to be struggling to get under control.
“Inflation is not yet at the central bank targets, despite declining. SARB believes consumer inflation needs to return to its 4,5% target, the midpoint of its 3-6% range, and be sustained at that level before policy can change. Based on this, it is not certain that interest rates will, in fact, decline in 2024. Several analysts have already pushed out their forecast for interest rate cuts too late in the year, in line with Rode’s view,” says Lamprecht.
“Turning to our forecast, we still expect nominal house prices in 2024 to grow at a slower rate than 2023’s average of 1,5% amid a weak economy and elevated interest rates. Rode has warned numerous times before that interest rate forecasts can change quickly, which has indeed happened.”
Not all doom and gloom
It appears that housing market activity has stabilised and even improved in some cases after the sharp downward trend in the first half of 2023, Lamprecht informs. He is referring to the slower decline in the value of mortgages granted in the second half of 2023, as per SARB data.
Furthermore, Lamprecht cites FNB data that shows sales activity levels in the Western Cape, Gauteng, and KwaZulu-Natal picked up in the fourth quarter of 2023 and first quarter of 2024. Sales activity remained the highest in the Western Cape in the first quarter. Here, houses also sold the quickest at seven weeks, which is less than the average of 11-12 weeks for the other major provinces.
Lamprecht said that the sideways move in interest rates since May 2023 “could have also played a role in the stabilisation of the housing market.”
Outlook
The Rode Report states that the fundamental driver of house prices continues to be the economy. Major factors that have held back economic growth include: “The electricity supply crisis, logistical bottlenecks and the central bank’s normalising of the interest rate. Weak economic growth, coupled with elevated interest rates, negatively impacted the value of residential mortgages granted in 2023. “The nominal value of residential mortgages granted fell by 10,2% in the fourth quarter of 2023 compared to the fourth quarter of 2022. This took the decline for the full 2023 to 19,7%.”
However, we note the view of better economic growth for 2024 taken by the Bureau for Economic Research at the University of Stellenbosch, which in April 2024 forecast real GDP growth of 1,3%. This is up from 0,6% in 2023.”
Another factor impacting mortgage requests is that property buyers tend to shy away from cities and towns with dysfunctional municipalities characterized by high debt levels and a collapse in service delivery. “Imagine the impact of this factor on asset values in such towns,” says Lamprecht.
“Overall, taking all market disruptors into account, it is worth pondering whether the property market has seen the worst. But much can change, and we should not discount that it is an election year, where sentiment can change depending on the outcome of the general and regional voting.”
